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High Court holds eBay not liable for trade mark infringement by its users

L’Oréal S.A. & Others v eBay International AG, eBay Europe S.A.R.L, eBay (UK) Ltd & Others, [2009] EWHC 1094 (Ch), was one of a number of test cases brought by L’Oréal in courts around Europe which raised issues regarding the liability of eBay for trade mark infringements committed by its users and whether eBay itself committed infringement by using trade marks in relation to infringing goods. Arnold J held that eBay was not jointly liable with individual sellers for the sale of infringing and counterfeit products on its website although he did find eBay primarily liable for trade mark infringement in respect of use of trade marks in the sponsored link advertising and on the website; however, since the law was unclear in a number of respects, he decided to refer questions to the ECJ. He has now heard further submissions from the parties in this case and in Interflora, Inc & Another v Marks and Spencer plc & Another [2009] EWHC 1095 (Ch), where some of the same issues arose, on the formulation of the questions but at the date of writing this article they have yet to be agreed.

The four Claimants in the action were all referred to as “L’Oréal”. The First, Second and Third Defendants are subsidiaries of eBay, Inc. and were referred to as “eBay Europe”. The Fourth to Tenth Defendants were individuals who were alleged to have sold infringing products through eBay Europe. There were fourteen UK trade marks and two CTMs (the “Trade Marks”) in issue which were either word marks or barely stylised word marks, except for CTM 4046785 which was a device mark. L’Oréal divided the marks into two classes: the “Lancôme Marks” consisting of LANCÔME, RENERGIE, DEFINICILS and AMOR AMOR and the “Link Marks” which consisted of DEFINICILS together with the remaining Trade Marks not included in the first group.

L’Oréal’s allegations

L’Oréal made three principle allegations against eBay Europe:

eBay Europe were jointly liable for infringements of the Trade Marks committed by the Fourth to Tenth Defendants (who were liable under Article 5(1)(a) of the Trade Marks Directive). L’Oreal did not allege that eBay Europe were primarily liable in respect of the offer for sale or sale of the goods in question.

eBay Europe were primarily liable for the use of the Link Marks (i) in sponsored links on third party search engines and (ii) on the website www.ebay.co.uk (the “Site”), in both cases in so far as such use was in relation to infringing goods. It was admitted by eBay Europe that they had purchased keywords consisting of the Link Marks from Yahoo!, MSN and Google. This had the effect that a search on, say, Google using a Link Mark caused a sponsored link to the Site to appear. If the user clicked on this sponsored link, he was taken to a display of search results on the Site. Use of the Link Marks on the Site arose from the Site enabling users to browse and search for items and refine their search including by reference to a list of brand names.

If the Court found that Forth to Tenth Defendants had committed infringements, L’Oréal were entitled to an injunction against eBay Europe to restrain future infringements by virtue of Article 11 of Directive 2004/38/EC (the “Enforcement Directive”), even if eBay Europe were not themselves liable for trade mark infringement.

Infringement by individual sellers

Arnold J held that the Fourth to Tenth Defendants had infringed the Trade Marks. In the case of the Fourth to Eighth Defendants, the goods they sold were put on the market in the USA and L’Oréal did not consent to those goods being put on the market within the EEA. In the case of the Ninth and Tenth Defendants, the goods they sold were counterfeits.

In so finding, Arnold J set out the six conditions which the ECJ had established for a finding of infringement under Article 5(1)(a) of the Trade Marks Directive as follows:

there must be use of a sign by a third party;

the use must be in the course of trade;

it must be without the consent of the proprietor of the trade mark;

it must be of a sign which is identical to the trade mark;

it must be in relation to goods or services which are identical to those for which the trade mark is registered; and

it must affect or be liable to affect the functions of the trade mark, in particular its essential function of guaranteeing to consumers the origin of the goods or services.

Arnold J rejected eBay Europe’s submission that Article 5(1) is confined to use by a third party of a sign in relation to the third party’s goods. He held that Article 5(1) extends to use by a third party of a sign in relation to the trade mark proprietor’s goods as is clear from the wording of Article 7 and cases such as BMW v Deenik, Case C-63/97.

Arnold J commented that the ECJ’s case law was unclear in relation to whether and if so what the sixth condition added to the fifth condition (see list above); if the sixth condition did add something, it was unclear whether damage to functions other than the origin function could be relied upon to support a claim under Article 5(1)(a), and if so in what circumstances; and if damage to functions other than the origin function could be relied on, it was unclear what the relation was between Article 5(1)(a) and Article 5(2) in double identity cases where there were identical signs and identical goods. He suggested that the difficulty would be dispelled if it were recognised that the sixth condition added nothing to the fifth.

Exhaustion of rights

Article 7(1) of the Trade Marks Directive provides that a trade mark proprietor may not prohibit use of his trade mark in relation to goods which have been put on the market in the EEA either by him or with his consent. However, this does not apply where the proprietor has legitimate reasons to oppose further commercialisation, especially where the condition of the goods is changed or impaired after they have been put on the market (Article 7(2)).

Arnold J considered whether the sale on the Site of testers, dramming bottles (large containers from which small 5ml aliquots can be taken for supply to consumers as free samples) and unboxed products amounted to an infringement of the Trade Marks. Although these questions were academic so far as the acts committed by the Fourth to Tenth Defendants were concerned (since the goods originated from outside the EEA), they were potentially relevant to the question of the relief, if any, to which L’Oréal were entitled.

Testers and dramming bottles are supplied without charge to L’Oréal’s authorised distributors for use in demonstrations and for providing customers and would be customers with free samples. Neither are intended for sale to consumers. L’Oréal submitted that the judgment of the Bundesgerichtshof (the German Federal Supreme Court) in Case I ZR 63/04 Perfume Tester Bottles, reported in English at [2009] ETMR 9, in which it was held that in similar circumstances the trade mark rights were exhausted under Article 7(1), was wrong. Both parties made submissions based on the ECJ’s decision in Peak Holding AB v Axolin-Elinor AB, Case C-16/03 to support their differing points.

Arnold J held that the matter was not clear and it was at least arguable that the Bundesgerichof’s decision was wrong. According, he considered that guidance was required from the ECJ on the issue.

In relation to unboxed products, L’Oréal contended that they had legitimate reasons to oppose further commercialisation since they were sold in contravention of the Cosmetics Products (Safety) Regulations 2004. Although eBay Europe accepted that the sale of unboxed products which lacked a list of ingredients and/or a best before date contravened these Regulations, it submitted that did not constitute ipso facto a legitimate reason for L’Oréal to oppose further commercialisation of the goods. In this, eBay Europe relied upon the decision of the ECJ in Case C-348/04 Boehringer II, and upon the subsequent decision of the Court of Appeal in Boehringer Ingelheim KG v Swingward Ltd [2008] EWCA Civ 83, [2008] ETMR 36 and the opinion of Advocate General Stix-Hackl in Zino Davidoff, Joined Cases C/415/99, C/415/99 and C-416/99. In relation to the latter, Arnold J was of the opinion that the questions relating to what amounted to legitimate reasons for a proprietor to oppose further commercialisation of his goods under Article 7(2) which were referred by Laddie J and considered by the Advocate General, but not the ECJ, remained questions on which guidance from the ECJ was required.

Joint liability

Arnold J had considerable sympathy with L’Oréal’s suggestion that eBay Europe could and should deal with the problem of infringement by accepting liability and insuring against it by means of a premium levied on sellers. eBay and its competitors had created a new form of trade which carried with it a higher risk of infringement than more traditional methods. Arnold J considered that there was much to be said for the view that, having created that increased risk and profited from it, the consequences of that increased risk should fall upon eBay rather than trade mark owners. But, while it would be possible for eBay Europe to do more to prevent or at least minimise sales of counterfeit and other infringing products on the Site (for example by filtering descriptions as well as titles or including filters to detect listing of testers and other not-for sale products and unboxed products), this did not mean that they were legally obliged to do so.

The issue of whether eBay Europe were liable as joint tortfeasors was most acute in relation to non-EEA goods, particularly in the case of the International Site Visibility facility which provided a specific mechanism for foreign sellers to target UK buyers. Nevertheless, the facility was capable of being used in a manner which did not infringe third party rights.

Despite his sympathy for the brand owners, Arnold J held that eBay Europe were under no legal duty to prevent infringement of third parties registered trade marks. Facilitation with knowledge and an intention to profit was not enough. Given this, eBay were not liable as joint tortfeasors either by procurement or by participation in a common design.

Primary infringement by eBay: use in sponsored links and on the Site

In relation to sponsored links, the specific act complained of was the appearance of the relevant sign in the sponsored link in the search results page, e.g. following a search on www.google.co.uk. L’Oréal submitted that such use was entirely analogous to an advertisement placed in a newspaper or television broadcast. The use complained of on the Site arose from eBay enabling users to browse and search for items, and the consequent display of a list of results including infringing and non-infringing items.

Arnold J considered the issues under the following headings:

Use?

Arnold J was of the opinion that there was “use” of the signs in question in that the sponsored links constituted advertisements placed by eBay Europe falling within Article 5(3)(d) of the Trade Marks Directive albeit that they were displayed to the user by Google in response to a search request. Further, there was also “use” on the Site, although this was more like a heading in classified advertising and less like the actual advertisement itself. However, due to the current uncertainty over this and related questions discussed in Interflora v M&S, he was not able to say that the law on this point was acte clair.

In relation to?

Arnold J considered that there was some degree of nexus between the use of the sign in the sponsored link and the purportedly infringing goods. This was because the user, when clicking on the sponsored link, was lead directly to listings for goods by reference to the sign which included infringing goods. In the present state of the ECJ’s jurisprudence, it was arguable that this was sufficient to constitute use “in relation to” infringing goods. Similarly, it was arguable that there was sufficient nexus between the use on the Site and infringing goods since, potentially, there was use in relation to all goods (both infringing and non-infringing) listed at the time the search was carried out.

In the course of trade?

eBay Europe did not dispute that, if there was use of the signs in the UK (see below), there had been “use in the course of trade”.

In the United Kingdom?

It was common ground that the mere fact that a website is accessible in the UK does not mean that an advertisement on that website constitutes use of that sign in the UK. It has to be aimed or targeted at consumers in the UK (following Euromarket Designs v Peters [2001] FSR 288 and 800-FLOWERS [2000] FSR 697, affirmed [2001] EWCA Civ 721, [2002] FSR 191). Where both price and postage were stated in sterling and it could be inferred that the sellers were either UK sellers or non-UK sellers who had registered on the Site, the listings were clearly targeted at UK consumers. Less clear was the situation where the price was stated in sterling but in italics, indicating that it had been converted from a foreign currency “from eBay International sellers”. However, it appeared that this was not due to a worldwide search, but due to a country-specific package (a predecessor of International Site Visibility) and therefore Arnold J held that the listings were clearly targeted at UK consumers. It was immaterial that the sellers relied upon eBay to convert their prices into sterling rather than doing it themselves. Arnold J held that he would have come to the same conclusion even if the results had appeared following a worldwide search.

Infringing use?

Arnold J considered that L’Oréal was right when it submitted that the sponsored links infringed where they related to listings for non-EEA goods even though the goods in question had not been sold or delivered to purchasers in the UK. Class International v Unilever Case C-405/03, Montex Holdings v Diesel Case C-281/05 and the judgment of the Court of Appeal in Eli Lilly v 8PM Chemists [2008] FSR 12 were distinguishable as being cases on the transit of goods under customs procedures. Again, however, Arnold J felt that the law was not acte clair.

In conclusion, whether eBay Europe had infringed the Link Marks by use in sponsored links and on the Site in relation to infringing goods depended upon a number of questions of interpretation of the Trade Marks Directive upon which guidance from the ECJ was required.

E-Commerce Directive

eBay Europe claimed that it came within the hosting defence in Article 14 of the E-Commerce Directive 2000/31/EC. Arnold J preferred L’Oréal’s argument that Article 14 was limited to activities of a technical nature and that eBay was aware of the illegal activity taking place. But again, this was a matter upon which guidance from the ECJ was needed.

Injunction against eBay

Arnold J held that, as a matter of domestic law, the Court had power to grant an injunction against an intermediary such as eBay Europe by virtue of the infringements committed by the Fourth to Tenth Defendants. However, the scope of the relief which Article 11 of the Enforcement Directive required national courts to grant in such circumstances was unclear and thus another matter upon which guidance from the ECJ was required.

Comment

This case highlights the difficulties in the UK in establishing liability by common design. As joint tortfeasorship is a matter of English case law, the outcome may be different in other jurisdictions. In parallel proceedings around Europe, eBay have been successful in Belgium whereas L’Oréal have prevailed in Germany. In France, a mediation has been proposed by the Paris court of first instance and accepted by the parties, the court preferring a stay of proceeding on eBay’s liability and possible damages due to L’Oréal.

The comments by Arnold J that eBay could and should do more (despite its VeRO programme) to prevent the sale of infringing goods by its users will be of some comfort for L’Oréal, and may encourage them to appeal the decision once the reference to the ECJ has been dealt with.

The questions to be referred in this and the Interflora v M&S case will be of considerable interest. Since Arnold J’s judgment, the ECJ has given its decision in L’Oreal & Others v Bellure & Others, Case C-487/07. In particular, the ECJ has again indicated that for there to be infringement under Article 5(1)(a) of the Trade Marks Directive, the defendant’s use has to cause detriment to one of the functions of the proprietor’s mark which includes the functions of communication, investment or advertising. Any insight on what this means would be welcome, particularly given Arnold J’s comments about the lack of clarity this condition brings over and above the other requirements for infringement under Article 5(1)(a).